Editorial

We love stocks

Some things always happen to the other guy--whether it is getting the absolute lowest plane fare, or participating in fads, investment or otherwise. We ourselves are wise, it is the other camp that are really the "noise traders." But whereas most investment fads seem to be easy to spot (insert your favourite Internet stock story here) and also seemingly easy to avoid, it is worth noting that there are other trends that are more insidious--taking far longer to play themselves out. When you stretch out the time frame long enough, it becomes too easy to forget that things weren't always this way.

A current fad (er . . . trend), as the title suggests, is our love affair with equities. It is difficult to imagine that there was a time when fiduciaries could only invest in government securities or first mortgages. Even the CPP Board has gotten on the train, with its recent move from government bonds to equity investments this year. And who can fault this? Equities have had stellar returns (see page 25 and Eric Kirzner's comments about betting against the pack on page 9).

Another trend is that all of this is really an easy game to win. Therefore, individuals should be given increasing responsibility over their own retirement, with equity markets providing an often substantial role. Thinking about this trend we can turn to Charles Ellis, managing partner of Greenwich Associates, who reminds us why the stock market is such a difficult game for individuals to win in a 1975 article reprinted in The Investor's Anthology. He calls investing a loser's game, and contrasts it to the actions of professionals in sports, where the ultimate outcome is determined by the actions of the winner. Victory is due to winning more points than the opponent. In a loser's game, bad players may beat their opponent, but they beat themselves as well. The winner here gets the higher score because his opponent is losing even more points. So the way to win at any loser's game is to play conservatively--keep the ball in play, and give the other person plenty of room to make mistakes and lose. In summary, make fewer bad shots.

For investors, this doesn't necessarily mean a passive approach, but rather one of knowing your policies, keeping the game simple and concentrating on your defense (i.e. spending most of your time making sell decisions).

So maybe the earth has shifted, and we can all easily make money with equities. Maybe things are different now, though if we have managed to eliminate speculative bubbles and even the humble business cycle, somebody forgot to tell me. But remember that long-term trends are still trends, be careful not to think that they are truisms simply because they have been repeated so often.

James Helik

Editor

Transcontinental Media G.P.